Former Justice: NJ Supreme Court Will Have to Make Decision on Pension COLAs

That pension reform law Gov. Chris Christie signed in 2011 is headed back to state Supreme Court — this time over a freeze on pensioners’ yearly cost of living adjustments (COLAs). Last year, an Appellate Division ruled that COLAs are a contractual right. If the state Supreme Court agrees, it could add more than $1 billion to what pensioners are owed, at a time when the state pension funds are already facing $40 billion in unfunded liabilities and may run dry within a decade. Former State Supreme Court Justice Peter Verniero told NJTV News Anchor Mary Alice Williams that COLAs are an adjustment to someone’s base pension and that it can be increased depending on inflation or other factors.

When asked what the impact would be if the state Supreme Court upholds the appellate court’s decision that pension recipients are entitled to COLAs, Verniero said that the case would not be over at that point.

“Well the case would actually not be over at that point,” he said. “Because the Appellate Division, although it ruled that you do have a contractual right to a COLA, it did not rule whether that right had been impermissibly impaired because the Appellate Division said it needed more facts, it needed a better record. So the case would actually be remanded in that situation to go back to the trial court.”

Verniero said that the case would have to go back to the trial court to determine whether the state was then justified in departing from the contract.

While Verniero said that he does not know what the public worker unions will argue, he assumes that they will say that the Appellate Division was correct and that the COLAs are a matter of statue that are included with what the Legislature had in mind.

“But that’s very much the question — are COLAS included in what is thought of as a base pension or are they something in addition to?” asked Verniero. “The state is arguing that they are an adjustment, they are not part of base pension. The Appellate Division disagreed. It’s up to the Supreme Court to decide the question.”

During the decision by the Appellate Division, it found that COLAs at issue were pre-funded, said Verniero. He said that they are not depending on appropriations and that it may be true for many of the pension systems, but maybe not all of them. He said that one of the complexities of the case is that there are a number of pensions and that they all have differences. Verniero thinks that one of the things that will have to be sorted in the case would have to be exactly who the pensioners are who are covered by the particular COLAs in question and who are not.

“This is a very complicated case,” said Verniero.

The court set to hear the case is the same one that allowed Christie to not fully fund the pension system in accordance with the 2011 agreement. Verniero said that the issues are separate. He said that he could envision a situation where the court would need to at least consider the prior case, where it said that the Legislature was not authorized to enter into a contract that would essentially bind future legislatures in multiple appropriation years to fund the pensions.

“The case we’re now talking about is about whether there’s a contract to pay the COLAs, or whether the Legislature has discretion to suspend the COLAs, which they did,” he said.

Christie has said that there is no money to make the pension payments, which he’d like to pay. If the court decides that the COLAs have to be paid and there’s no money, Verniero said, “It would go back to the trial court and then there would have to be a hearing to see exactly whether it was reasonable or not reasonable to suspend the COLAs.”

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